Amid Diplomatic Stand-Off, Hyundai Suspends China Plant For A Week

Concerns that a diplomatic standoff may be hurting sales in the top market of South Korea’s Hyundai Motor, the automaker announced on Monday that it had suspended production at one of its Chinese factories for a week.

Because of Beijing’s objections to a planned deployment of the U.S. Terminal High Altitude Area Defence (THAAD) system in South Korea, they are being targeted in China, say South Korean companies, from cosmetics firms to retailers. The tHAAD system’s powerful radar can penetrate its territory is the worry of China.

Shares of the company were drive down as much as 3 percent on Monday shares of the company down as much as 3 percent on Monday after news of Hyundai’s China plant closure was first reported by online media ChosunBiz on Sunday.

Values were also lower for shares in Hyundai’s affiliates, Kia Motors and Hyundai Mobis.

In order to check its production line to modify technology, it had suspended the plant in Hebei Province, from March 24 to April 1, Hyundai said. China accounts for about a quarter of thee total sales of the company and the automaker has three other passenger car factories in China.

Given slowing sales in China, due to political tension and rising competition, the suspension may be aimed at bringing down inventories, say industry officials and analysts.

Hyundai’s March sales in China may have fallen year-on-year due to the political spat, after gaining in January and February, said Ko Tae-bong, an analyst at Hi Investment & Securities.

At a time when sport utility vehicles have become more popular, the company has a product line-up that features more sedans and hence the automaker is already grappling with falling market share in China.

A threat from Chinese makers armed with cheaper SUVs was underlined as China’s Geely Automobile Holdings Ltd recently reported its biggest profit growth in eight years.

At its Hebei plant, which came online less than six months ago, Hyundai makes Verna subcompact car.

Later this year, production at a fifth China factory is being panned by the automaker. Hyundai conducts it s business in China though a 50-50 joint venture and state-owned Beijing Automotive is its partner.

They were less likely to be the main target of any punishment resulting from the diplomatic standoff over the deployment of the THAAD because of the company’s business ties with Chinese firms, Hyundai officials have previously said.

While state media has called for a boycott of South Korean goods, China’s tourism ministry has instructed tour operators in Beijing to stop selling trips to South Korea, and these facts makes the chill in business ties between the nations very evident.

With some workers saying the closures were fire-safety related, Chinese authorities have also closed nearly two dozen retail stores of South Korea’s Lotte Group. Lotte approved a land swap outside Seoul that will allow South Korea to install the THAAD earlier this year,